Gross profit
Learn what gross profit is, how to calculate it with a simple formula, and how it differs from net profit.
Published Thursday 23 July 2026
Table of contents
Gross profit is what’s left after paying for the things you’ve sold to customers
Key takeaways
- Gross profit is the money you have left after paying for the things you sold to customers.
- You work it out with a simple sum: revenue (net sales) minus cost of goods sold (COGS).
- Gross profit is a dollar amount, while gross profit margin turns that amount into a percentage of revenue.
- It's not the same as net profit, which is what's left after all your operating expenses and tax.
What is gross profit?
Gross profit is the money you have left after paying for the things you sold to customers. It shows how much you made on your sales before other running costs come out.
You don't get to keep all of it. You still need to pay operating expenses like rent, wages and tax from this pot of money, and gross profit shows up near the top of your profit and loss statement.
Gross profit formula and how to calculate it
Working out gross profit takes one quick calculation, and you only need two figures to do it. Here's the formula:
Gross profit = revenue (net sales) minus cost of goods sold (COGS)
Say your business brings in NZ$90,000 in revenue over a quarter, and the direct cost of making or buying what you sold is NZ$27,000. Your gross profit is NZ$90,000 minus NZ$27,000, which comes to NZ$63,000.
What's included in cost of goods sold (COGS)?
Cost of goods sold covers the direct costs of making or buying the products you sell. These are the costs that rise and fall with how much you produce or sell, and they typically include:
- raw materials and stock you buy to sell on
- direct labour, such as wages for the people who make the product
- freight-in, meaning the cost of getting materials or stock to you
Some costs sit outside COGS because they aren't tied directly to a sale. Rent, admin salaries, general overheads and tax are all left out, and they come off later when you work out net profit.
Gross profit vs gross profit margin
Gross profit and gross profit margin measure the same thing in two different ways. Gross profit is a dollar amount, while gross profit margin turns that amount into a percentage of your revenue so you can compare periods or products fairly.
You work out the margin with this formula: (gross profit ÷ revenue) × 100. Using the earlier example, NZ$63,000 divided by NZ$90,000, then multiplied by 100, gives a gross profit margin of 70%.
Gross profit vs net profit
Gross profit and net profit both measure profit, but they sit at different points on your profit and loss statement. Knowing the gap between them helps you see where your money goes.
Gross profit is revenue minus cost of goods sold, so it only accounts for the direct costs of what you sold. Net profit is what's left after you take out all your operating expenses and tax as well, so it's the figure that shows what the business actually keeps.
Why gross profit matters for your business
Gross profit tells you how much you made on your sales, and that number shapes almost every decision that follows. A healthy gross profit gives you room to cover operating costs and still have something left over.
The higher your gross profit, the more you have to pay for rent, wages and loan repayments, and the better your chance of turning a net profit. Tracking it over time also shows whether your pricing, supplier costs or product mix are moving in the right direction.
Track your gross profit with Xero
Keeping an eye on gross profit is much easier when your sales and costs sit in one place. Xero pulls your figures together and updates your profit and loss statement as you go, so you can see how each product or period is performing without digging through spreadsheets. Ready to see your numbers clearly? get one month free.
FAQs on gross profit
Here are answers to some frequently asked questions about gross profit to help you use the figure with confidence.
Does gross profit include tax?
No, gross profit only takes cost of goods sold off your revenue. Tax and other overheads come out later when you work out net profit.
What is a good gross profit margin?
It varies a lot by industry, so there's no single figure that works for every business. Compare your margin against similar businesses in your sector and track your own trend over time.
Can gross profit be negative?
Yes, gross profit is negative when your cost of goods sold is higher than your revenue. That's a sign your pricing or direct costs need a closer look.
Is gross profit the same as gross income?
They're often used loosely, but it's clearer to stick with gross profit for revenue minus cost of goods sold. That keeps it separate from net profit, which is what's left after all expenses and tax.
Related Terms
Learn more about gross profit
Handy resources
Advisor directory
You can search for experts in our advisor directory
Profit & Loss template
Download Xero’s profit and loss statement template to show how much money you business is making
Financial reporting
Keep track of your performance with accounting reports
Disclaimer
This glossary is for small business owners. The definitions are written with their requirements in mind. More detailed definitions can be found in accounting textbooks or from an accounting professional. Xero does not provide accounting, tax, business or legal advice.